Question

Sandhill Co. received proceeds of $583500 on 10-year, 8% bonds issued on January 1, 2019. The bonds had a face value of $550000, pay interest annually on December 31, and have a call price of 102. Sandhill uses the straight-line method of amortization. Sandhill Co. decided to call the bonds on January 1, 2021. What amount of gain or loss would Sandhill report on their 2021 income statement?

Answer 1

Answer:

$15,800 gain

Explanation:

Calculation for the amount of gain or loss would Sandhill report on their 2021 income statement

First step is to calculate Annual Amortization

Annual Amortization=($583,500 - $550000) ÷ 10 Annual Amortization= $3,350

Now let calculate the amount of gain or loss

Gain or loss= ($550,000 × 1.02) - [$583,500 - ($3350 × 2)]

Gain or loss= $561,000-($583,500-$6,700)

Gain or loss=$561,000-$576,800

Gain or loss=$15,800 Gain

Therefore the amount of gain or loss would Sandhill report on their 2021 income statement will be $15,800 Gain